ARF says bio-diesel is set to boom

Bio-diesel outfit
Australian Renewable Fuels
is predicting a surge in revenues as it ramps up production.

Australia’s biggest manufacturer of bio-diesel, which made revenue of $2.87 million in the year ended June 30, 2010, is targeting revenues of about $130 million in the year ended June 2012, and some $190 million in the subsequent year.

ARF may also make more acquisitions – it is now completing its purchase of Biodiesel Producers by assuming its $21 million of convertible debt.

As well as growing in the sector, the company is looking to position itself as a supplier of bio-diesel across Australia, particularly to service large customers who want one ­supplier across the nation. It already supplies Caltex, Wesfarmers and BHP Billiton, among others.

“There are some other plants in Australia that would be of interest from their geographic position, and fundamentally we would look to expand the overall network," said managing director
Tom Engelsman
.

ARF might expand into power generation and desalination, where bio-diesel could be used.

Deals could be funded through debt or the issue of new equity. Any deal would need to be earnings accretive, Mr Engelsman said.

“Most things might take six or eight months to be accretive, but I certainly wouldn’t want to take it beyond a financial year," he said.

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Mr Engelsman joined the company in 2009 with a brief to change its fortunes. He has more than 30 years of experience in businesses around the world, including as chief executive of several listed companies.

“The whole concept was to take the company and develop a turnaround strategy," he said.

ARF came under pressure in 2006 and 2007, when it had to write down the value of its assets by $50 million, because of uncertainty about what tax might be applied to bio-diesel in the future and after problems securing feedstock. From a high of $1.39 in May 2006, the company’s shares plummeted to less than a cent at the end of 2008.

After Mr Engelsman joined, ARF spent a year developing different feedstock models and working out how the plants could be optimised. It also won a key anti-dumping case against subsidised fuel from the US.

Those factors, along with a federal government ruling on a key tax rebate, have helped to put some momentum back into the company’s shares, which are up 19 per cent so far this year, and up 67 per cent in the last 12 months to 2.5¢, giving the company a market capitalisation of $31 million.

The company is now set to increase production, which would drive the planned increase in revenues. After it completes the Biodiesel Producers deal, ARF will have an annual total production capacity of 150 million litres of bio-diesel a year.

The company’s bio-diesel plants are producing at 25 per cent of capacity, a deliberate cutback while it tests plant design and feedstocks.

Mr Engelsman believes Australian bio-diesel production is set to grow.

“I suspect that it will do in terms of the overall range that is seen in the overseas markets, where some 25-plus per cent of the total diesel consumption is on a renewable source."